OH 1-1

What Is Cost Control?

Controlling Foodservice Costs

1OH 1-1

OH 1-2

Chapter Learning Objectives

Describe the relationship between standards and controlling costs.

Identify the types of costs incurred by a restaurant or foodservice organization.

Classify foodservice costs as controllable or noncontrollable.

Describe and give examples of controllable and noncontrollable costs.

OH 1-3

Chapter Learning Objectives continued

Classify foodservice costs as variable, semivariable, or fixed.

Describe and give examples of variable, semivariable, and fixed costs.

Explain the basic foodservice cost control process.

OH 1-4

Characteristics of Controls

Contribute to profit making

Start with the menu

Affect all areas of the operation

Are formalized through a restaurant’s policies and procedures

OH 1-5

Cost Standards

Are used to compare actual results to planned results

Are established by management

Standards may be designed to Ensure a profit

Stay within the budget

Achieve planned quality levels

OH 1-6

Costs Impact Profit

Excessive costs reduce restaurant profitability.

OH 1-7

Types of Costs

Controllable Costs Food Labor Cleaning supplies

Noncontrollable Costs Insurance

Mortgage payments

Cost of licenses

OH 1-8

Types of Costs continued

Fixed Costs Do not vary with sales volume Do not change from one accounting period to the

next Variable Costs

Increases and decreases are directly related to sales volume

Semivariable Costs Increase or decrease with changes in sales volume,

but not in direct proportion Contain both fixed and variable components

OH 1-9

Variable Costs

Directly affect profitability

Can be controlled by management

Are compared to an established standard

OH 1-10

Prime Costs

Include those expenses classified as Food

Labor

Are directly controlled by management

Make up the majority of a restaurant’s total costs

Are directly related to profitability

OH 1-11

Prime Costs continued

The costs of food and labor are a restaurant’s greatest expenses.

OH 1-12

The Cost Control Process Steps

Step 1 – Collect sales and cost data.

Step 2 – Monitor and analyze sales and costs.

Step 3 – Take corrective action as appropriate.

OH 1-13

The Cost Control Process

Step 1 – Collect sales and cost data.

Yearly and monthly data are used for budgets and income statements.

Weekly and monthly data are used for purchasing and scheduling.

Meal period data are used for production planning.

OH 1-14

The Cost Control Process continued

Step 2 – Monitor and analyze sales and costs.

Evaluate The line item’s name

Budgeted cost

Actual cost

Cost difference

Percentage difference

OH 1-15

The Cost Control Process continued

Step 2 – Monitor and analyze sales and costs.

Compare actual sales and costs to Budget (line item review)

Operational standards

Historical information

Identify variances

OH 1-16

Computation of Percent Difference

Actual cost of $48,000

Budgeted cost of $45,000

Actual cost – Budgeted cost = Cost difference

$48,000 – $45,000 = $3,000

OH 1-17

Computation of Percent Difference continued

Cost difference ÷

Cost budgeted = Percent

difference

$3,000 ÷ $45,000 = 0.067, or 6.7%

OH 1-18

Cost Variations

Can be preventable

May be unpreventable

Take corrective action on preventable cost variations

OH 1-19

The Cost Control Process continued

Step 3 – Take corrective action as appropriate.

Variations from anticipated results may be Large and significant

Small, but still significant

Small and insignificant

OH 1-20

Corrective Actions for Cost Control

To reduce food cost

Reduce portion size.

Replace the item with a lower cost alternative.

Feature menu items with higher profit margins (lower costs).

Raise menu prices.

OH 1-21

Corrective Actions for Cost Control continued

To reduce food waste

Monitor portion control.

Monitor food storage and rotation.

Monitor food purchasing (buy appropriate amounts).

Minimize production errors.

OH 1-22

Corrective Actions for Cost Control continued

To reduce labor cost

Reduce the number of employees on the schedule.

Ask employees to end their shift early if they are not needed.

Cross-train staff.

OH 1-23

Corrective Actions for Cost Control continued

Do you think food or labor costs are higher in this restaurant?

Why?

OH 1-24

How Would You Answer the Following Questions?

1. Who is responsible for the size of a restaurant’s fixed expense?

2. Which of the following vary with sales volume?A. Fixed expenseB. Semivariable expenseC. Variable expenseD. Both B and C

3. Who is responsible for monitoring controllable costs?

4. What two components make up “prime cost?”

OH 1-25

Key Term Review

Control

Controllable cost

Corrective action

Cost of food sold

Fixed cost

Gross profit

Income statement

Labor expense

Line item review

Loss

OH 1-26

Key Term Review continued

Noncontrollable cost

Prime cost

Profit

Sales

Semivariable cost

Standard

Total expense

Variable cost

OH 1-27

Chapter Learning Objectives—What Did You Learn?

Describe the relationship between standards and controlling costs.

Identify the types of costs incurred by a restaurant or foodservice organization.

Classify foodservice costs as controllable or noncontrollable.

Describe and give examples of controllable and noncontrollable costs.

OH 1-28

Chapter Learning Objectives—What Did You Learn? continued

Classify foodservice costs as variable, semivariable, or fixed.

Describe and give examples of variable, semivariable, and fixed costs.

Explain the basic foodservice cost control process.